"Andrea Orcel is an excellent banker but his pay rise is extreme"
So, the Unicredit board has recommended a 30% pay rise for Andrea Orcel? Good luck to him, and to them. But as a former senior employee of the Italian bank, I have some misgivings.
Orcel is an excellent banker, of this there is little doubt. But he has his faults and his pay rise is extreme.
Before shareholders vote to pass the total pay package, which could reach €9.75m if Orcel attains some easy targets, there are two serious considerations to be taken into account.
Firstly, does Orcel's new culture at Unicredit really fit the bank? Andrea has a radical Anglo Saxon approach to investment banking culture, which is all about performance and compensation. Unicredit has had a more Continental European culture, with a stronger attention to social values and cohesion and less emphasis on efficiency at any cost. There are therefore tensions, and I see Andrea creating an inner circle of people who understand his way of doing things, while many others are left behind. Is he being incentivized to change this, or just being paid to create short term upside?
Secondly, much has been made of Unicredit's rising share price, but this isn't necessarily the result of actions taken by Andrea himself. Much can be attributed to the strategy of Jean Pierre Mustier, who left in 2021 and enabled the low cost of credit that has facilitated this. Unicredit has also been helped by exogenous factors like rising rates and the end of quantitative easing, plus a short term opportunistic transfer of value to shareholders through dividends and buybacks. But where is the plan for long term value creation?
I don't begrudge Orcel his pay rise. But I do urge investors to consider that he is an expensive hired gun. As a former FIG banker he understands very well how to achieve a short term boost to shareholder value. But what happens when that boost expires? Is the franchise really that happy and healthy beneath?
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Filiberto Montante is a pseudonym